The Emerging Market Power Rankings: The Return of the Seller

By Ben Levisohn

Each week, I’ll highlight the best performing emerging-markets single country exchange-traded funds, using the most heavily traded for each nation. Frontier markets are not included–yet.

Bloomberg

That didn’t last long.

After gaining 2.9% last week, the iShares MSCI Emerging Markets Index ETF (EEM) fell 3% to $37.34 this week and put an end its winning streak at just one week.

The HSBC Emerging Markets Index, a compilation of purchasing managers’ indexes from across the developing world, paints a picture of what ails EM stocks. It sank to 50.6 in June, the lowest in more than four years. That suggests that the developing world is still struggling to produce the kind of grow that investors had become accustomed to.

The U.S. economy, meanwhile, has held up well enough that there’s no reason for investors to doubt that the Fed will slow its bond buying sooner rather than later. Today’s jobs report, which showed the U.S. had added 195,000 in June, was enough to send Treasury yields surging. And for the time being, at least, investors are assuming that tapering will be bad for emerging markets.

Then there’s China. Its short-term interest rates have returned to more normal levels, but there’s little doubt the PBOC is serious about reining in shadow banking. The lack of easy money will result in a slower economy, as will other steps reforms.

Still, the selling could ultimately be good news for investors, as the recent selling could lead to a bounce. Here’s Richard Titherington, chief investment officer for emerging market stocks at JPMorgan Asset Management, making the case, as reported by beyondbrics:

Since nobody can say when precisely that market recovery will come, investors have to buy in advance of the rally – or risk being left behind. And the best time to buy is when valuations are low, as they are today. Titherington told beyondbrics: “There’s a lot of things to worry about. Currencies and equities are under pressure and economic prospects are uncertain. But valuations are low.”

Taiwan’s stock market is primarily a play on tech, and even as Samsung and HTC disappoint on earnings, the companies providing chips and other components to smatrphone makers have done well. The iShares MSCI Taiwan ETF has dropped 2% this year.

Sure, inflation rose more in June than in May, and data showed that investors had reduced their holdings of Philippine stocks by 14%. But the Philippines still has economic growth that can surprise investors in a good way. Maybe that’s enough. The iShares MSCI Philippines Investable Market Index ETF has gained 0.3% so far in 2013.

Mexico has been beaten down this year, but after its recent selloff, perhaps investors are considering what a stronger U.S. economy can do for its southern neighbor? The iShares MSCI Mexico Capped Investable Market ETF has dropped 8.6% this year.

About Emerging Markets Daily

Emerging markets have been synonymous with growth, but the outlook for individual nations is constantly changing. Countries from Brazil and Russia to Turkey face challenges including infrastructure bottlenecks, credit issues and political shifts. Barrons.com’s Emerging Markets Daily blog analyzes news, data and research out of emerging markets beyond Asia to help readers navigate the investment landscape.

Barron’s veteran Dimitra DeFotis has been blogging about emerging market investing since traveling to India and Turkey. Based in New York, she previously wrote for Barron’s about U.S. equity investing, including cover stories and roundtables on energy themes. Dimitra was among the first digital journalists at the Chicago Tribune and started her career as a police reporter at the Daily Herald in the Chicago suburbs. Dimitra holds degrees from the University of Illinois and Columbia University, where she was a Knight-Bagehot Fellow in the business and journalism schools. She studies multiple languages and photography.